Hong Kong: Inflation rose to 4.6% In April

Headline composite CPI inflation in April was 4.6% yoy, up from the revised rate of 4.4% in March (previous estimate was 4.6%), meeting consensus estimate.

CPI(A) rose by 5.0% compared to April 2010, continued with the trend of faster rate of inflation for the consumer basket of low-expenditure (a.k.a. low income) families, while CPI(B) and CPI(C) rose by 4.5% and 4.2% compared to April 2010.

Inflation in April 2011 was mainly driven by alcoholic drinks and tobacco (19.9% yoy), food prices (6.3% yoy), and electricity, gas and water (7.9% yoy). Durable goods is the only component which dropped in prices (-4.9% yoy). Private housing rents also rose by 5.7% yoy for the headline composite CPI.

Source:Census and Statistics Department

This set of number is hardly surprising. Sticky inflation in China means that inflation in Hong Kong will be just as high given the amount of goods from China we consume. The implementation of minimum wage will also put upward pressure in prices in the short-term. The government has previous adjusted its inflation forecast upward from 4.5% to 5.4% for the headline CPI, and from 4.5% to 5.5% for the underlying CPI.

My judgment, however, is that as China continues with its monetary tightening, inflation will likely be less of a problem for China by the end of this year as the economy slows. Given the potentially lower inflation in China towards the end of this year, as well as the continuous spill over of monetary tightening from China to Hong Kong, I think inflation in Hong Kong may also become less of a problem towards the end of this year or early next year.

For now, I believe further acceleration of inflation in Hong Kong in the coming months is still possible before inflation pressure eases later this year or early next year.